Q1 2020 Earnings Call

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Greetings welcome to <unk> information sites, its first quarter 2020 earnings call.

At this time, all participants are in listen only mode.

A question answer session will follow the formal presentation.

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Please note this conference is being recorded.

I'll now turn the conference over to join soon Investor Relations since you may begin.

Thank you Rob and good afternoon, everyone. Thank you for joining US today provide information Sciences first quarter fiscal 2020 earnings conference call on the call today are lender Pruneau, President Chief Executive Officer, and her Mueller Senior Vice President Chief Financial Officer. After the market close. This afternoon. The company issued a press release announcing its results for the first quarter.

Fiscal year 2020, the release is available on the company's website at both dot com as well as the I grabbed TC website filed at the form 8-K before beginning today's prepared remarks, I would like to remind you that some of the statements made today will be forward looking and are under the private Securities Litigation Reform Act at 90 95 actual results may differ materially.

And that's projected or implied due to <unk> a variety of factors. We refer you to vote information Sciences recent filings with the FCC for a more detailed discussion of the risk that could impact the company's future operating results and financial condition.

Also in today's call management will reference certain non-GAAP financial measures, which we believe provide useful information for investors a reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon.

With that I would like to turn the call over to vote, the president and CEO Linda pronounced window.

Thank you, Joe and welcome everyone to our first quarter fiscal Twentytwenty earnings call.

In the first quarter adjusted revenue came in at the top end of our expectation as we continued to make progress on our strategic transformation secured multiple new wins and continued to realize reduced S. DNA from our efforts made and 29 team.

As we stated on our fourth quarter earnings call, we expected our progress would not be linear and that we would experience some challenging quarters.

Our first quarter revenue performance was as expected we continue to see our progress overshadowed in our results as compared to first quarter 2019, when we had unprecedented demand from some of our larger clients.

Revenue for the <unk> current quarter was also impacted by its just a certain clients from our North American staffing segment to our MSP segment.

I will go into more detail on these items later, but first I would like to turn the call over to heard me older. Our CFO, who will review our financial details for the quarter and then come back to talk about our strategy is an outlook herb. Thank you Linda good afternoon, everyone revenue for the first quarter fiscal 2020 was 217.8.

Million adjusted revenue, which excludes the effects of businesses exited the impact of client shifting to a managed service delivery model and foreign currency translations decreased 10.4% year over year, which was at the top end of the guidance provided on our fourth quarter call.

Looking at her business segment results North American staffing represented 84% of overall revenue during the first quarter revenue from this segment was 182.4 million adjusted revenue decreased 12.7%.

The decrease was primarily attributable to continued workforce adjustments from certain larger clients specifically related to changes in their businesses and the slower than anticipated post holiday ramp.

In addition clients that were previously within the North American staffing segment transferred to our North American MSP segment shift resulted in a net decrease of $2.6 million of revenue.

Our international staffing business, which represented 12% of total sales in the first quarter was relatively unchanged year over year at 26.2 million adjusted International revenue increased by <unk>.

0.2% year over year, primarily due to an increase in Belgium in Singapore offset by lower revenues from the United Kingdom.

At 4% of total revenue North American MSP continues to be the fastest growing business segment revenue increased 14% to 9.4 million during the first quarter. The increase is primarily attributable to expansion within existing clients and new wins for payroll services and the revenue associated with clients shifting from north.

American staffing.

Adjusted revenue increased 13.1%.

Moving down the piano gross margin for the first quarter was 14.4% compared to 14.9% in a year ago quarter. The primary drivers for the change in gross margin were smaller credit related to our workers compensation versus the prior year, an increase in other state mandated benefit costs and a mix shift within.

Our North American MSP segment.

SGN expense for the first quarter was 39.5 million compared to 39.8 million in the first quarter fiscal 2019.

The decrease was primarily due to cost reductions in all areas of our business.

Lower professional fees and reduced labor costs, resulting from lower head count were partially offset by increased depreciation expense and a number of favorable items from the prior year quarter that did not recur this year, including nearly a 600000 dollar credit from medical claims experience and $450000 from lower.

Equity compensation as a result of higher forfeitures in 2019.

This quarter also includes a 486000 dollar increase in expenses due to the elimination of the deferred real estate gain offset under the new lease accounting rules. The comparative impacted this change will recur each of the subsequent quarters in fiscal 2020.

For the first quarter fiscal 2020, we reported a loss of $10.8 million or 50 cents per share compared to a loss of 3.2 million or 15 cents in the first quarter fiscal 2019 loss. During the first quarter of 2020 included $1.2 million of cost related to the online.

Going restructuring efforts throughout the company adjusted EBITDA for the first quarter was a loss of 5.6 million compared to a loss of 1.1 million in the prior year quarter.

Moving onto a few key items from cash flow and the balance sheet at the ended the first quarter 2020, we had 30.9 million in cash and equivalents, an additional 8.5 million in restricted cash and short term investments. Our long term debt was 55 million. We have total available liquidity of 17.6 million.

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Upon adoption of the new lease accounting rule affected the first quarter of fiscal 2020, we recognized a 22.2 million cumulative effect adjustment to retained earnings related to the deferred gain on the 2016 sale and leaseback of real estate as I referred to in my SGN a comment.

We generated 33033.

Thousand cash flow for operations in the first quarter with capital expenditures of 1.4 million.

I'll now turn the call back over to lender, who will give greater detail on our outlook and review our strategies.

Thank you herb.

As I stated in my opening comments the progress we are making within volte is not fully reflected in our first quarter results.

We continue to make positive strides across our business, especially within our North American segment.

In our North American staffing segment, we are experience increased experiencing increased revenues from the business. We won late in fiscal 2019, the new accounts one during the first quarter are performing in line and in some cases better than initial projection.

This progress with more than offset by the ongoing workforce adjustments at certain of our larger clients combined with a softer ramp from some of our historic seasonal clients.

As.

The American staffing segment into our North American MSP segment.

This resulted in a lots of approximately 2.6 million in recognized revenue for the quarter exaggerating the year over year revenue decline for our North American staffing segment.

As referenced on our last call. We are in the final stages of completing the training for our everybody sell strategy within our branches and expect to achieve our previously stated goal of everybody selling by the end of this month. This approach is a fundamental change within our branches.

A key piece of our strategy for accelerating growth margin is our direct hire placement business.

After several slow quarters, we have seen recent progress in this area.

Following the holidays, we are seeing substantial increases in both order generation and billing.

The January direct hire result, outpaced prior year and early indications show that this trend is continuing into Q2.

Finally, we are in the process of bidding on multiple opportunities ranging from new business opportunities at the very attractive market profile to location and market share expansion within existing clients.

As an organization our sales and delivery teams are motivated and are doing an excellent job targeting accretive new business opportunities.

Our North American MSP segment continued its growth through a combination of increasing the suite of services offered as well as expansion into new sites.

After accounting for the revenue shift from our North American staffing segment, our MSP business grew 13.1% from prior year quarter.

We expect future growth will come from both expanding our presence and services with existing clients as well as new wins over the course of the year.

Let me take a minute to explain how clients transition from North American staffing to MSP occurs and how this benefit both the client and volte.

So this transition can be a natural progression in the lifecycle of select clients.

Many start off with the traditional staffing model and through their own growth and expansion a broader solution designed to reduce operational costs improve overall vendor management and allow for scalability in a dynamic environment maybe warranted.

Fortunately.

Both offers an industry leading solution what the demonstrated track record through our North American MSP organization.

Our transition to our managed solution offers volte, a greater portion of our clients business.

Our MSP manages their total talent spend expands our footprint within their organization and solidifies the relationship with the client.

This is very good for the company. Despite the transition looking different on our income statement, because we recognize revenue on a net net basis versus the gross basis.

Regarding our international segment like other companies that have operations in the UK, we're monitoring the implications surrounding the completion of Brexit at the end of January legislative changes and of course, the current Corona virus situation.

We expect headwinds in Q2 as these events unfold.

The international team remains focused on increased activity levels order generation, an order fulfillment and accelerating direct hire placements to offset any revenue impact with higher margin performance.

Lastly, I would like to provide an update on the strategic transitioning of some of our US based back office positions to arc turn of both company based in Bangalore.

The first phase is nearly completed and the overall project remains on schedule.

We recently hosted some of our India based employees at our Orange office and the group is very excited to be a part of an improving global organization and to participate in this important organizational transformation.

We are seeing significant progress made through collaboration with our India based team and our appreciative of their ongoing commitment, which is vital to our continued efforts to fully transitioned positions to Bangalore.

As we stated on our January call, we anticipate this as well as other strategic initiatives to result in $3 million in cost savings this fiscal year.

These savings will be recognized in the third and fourth quarters of fiscal Twentytwenty.

We also expect as much as $10 million in savings for fiscal 2021.

Before I move to the outlook I want to address volts preparedness plan in the wake of novel Corona virus Ur Cobot I covered 19.

In late January we established a cross functional incident response team to monitor and respond to ongoing development.

This team includes representatives of executive management, including myself.

We implemented at we updated travel policies based on the guidance from the center for disease control, including restricting all traveled to high risk countries and restricting non essential local travel.

We have prepared our contingency planning mechanisms in the event of office closures or infection at a client facility.

At present, we have had no reports of cobot 19 cases at any of our own locations or those we service.

We have notified our field employees through direct emails and paste up channels of the proper sanitation protocol travel restrictions and processes to follow in the event there ill or come in contact with someone who is ill.

We have a strike established strict guidelines for visitors to our offices and or our client site.

We have enhanced disinfecting scheduling at our client facilities, we service.

We have provided guidance to our partners, including our associate vendors and subcontractors on both hygiene travel and visitor policies.

We continue our ongoing efforts to inform educate and drive awareness across our entire workforce.

Volte remains committed to ensuring the correct steps are taken to protect our employees and our vile valued clients as this situation rapidly evolves.

Though we are not experiencing any notable business impact that we are aware that this time, we're closely monitoring real time.

The health and safety of our clients our field employees and our colleagues remains our top priority.

Moving now onto the outlook.

We are encouraged by the started the quarter as we sit here today six weeks in.

The favorable trend we expected played out with February performing better than Q1, and early March performing better than February.

Given the fluid and rapidly changing changing market conditions. The typically over the last 24 to 48 hours, we are unclear as to the impact we will realize over the remaining seven weeks.

We anticipate there maybe some impact however, when and how much remains largely unknown.

We do not believe it it's prudent to provide guidance at this point in time.

We continued to remain optimistic about our ability to achieve improved adjusted revenue and adjusted EBITDA performance in the latter half of fiscal 2020.

Before I open the call up for questions I want to thank each of our colleagues across the globe for the passion dedication loyalty and commitment they demonstrate each and every day. They remain steadfast in their desire to deliver outstanding service to our clients and field employees and eats into.

Vigil, regardless of roll positively impacts our ongoing volt story.

Now I would like to open up the call for questions operator.

At this time will be conducting a question answer session.

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One moment, please all the poll for questions.

Thank you.

Your first question comes from the line of Josh Vogel with Sidoti and company. Please proceed with your question.

Thank you good afternoon.

And in Herb.

Good afternoon.

I guess to start.

You know, it's obviously at the forefront of everyone's mind for for all companies today and I was just wondering if you can give.

Little bit more commentary around your liquidity position.

I'm happy to overall between the cash that we have in the banks and then our borrowing availability, we've got over $30 million.

They are able to us our fixed cost on a weekly basis for me as low as about two and a half million dollars.

So we've got if there was a extreme situation we've got.

Newer and in good position to whether that on top of very healthy receivable balance.

So ill receivable balance that well in excess of the debt that we have against it. So we feel very comfortable we modeled various scenarios.

Including say, if there was 10% to 15% reduction where we're we're covered too.

You know manage.

That may come from the.

Any reasonable.

Estimate of what May come from the Corona buyers.

Okay. That's really helpful. Thank you.

I was just curious when we look at.

Adjusted revenues for North America staffing.

Can you quantify what the year over year decline was from those specific large clients and then on the other side of it.

It was partly offset so how much.

Came from new business wins, with new clients as well as expansion with existing clients.

Yes, I would have an exact number on that but if you remember going back to last year, we started the.

These are the clients that we had in the.

Starting towards the end of the second quarter and then also the loss in the third quarter.

Well, so we havent loot.

On that but it's the primary driver of the shortfall, you'll really came with that group of clients.

Okay.

And looking at a the MSP unit.

Obviously strong performance there again.

You noted of expansion as existing clients I think you had a comment about some new wins for payroll services. I was just wondering if you could talk about the the pipe the new business pipeline.

How it looks today.

Yes, so I'm really proud of the North American MSP segment team.

They continuously are driving outstanding results and doing doing a phenomenal job, both with new client wins as well as expansion within their existing clients.

The pipelines are very robust.

They've they've got.

Multiple accounts close to close multiple accounts that they are targeting so I'm I'm confident in their ability to continue to drive new business wins as well as additional expansions as we continue through the year.

Okay, Great and two more quick ones and I'll hop back in the queue can you remind me I know you're done with phase. One can you remind me the timeline of the arc turned transition.

Happy to the.

We had both broken down into two phases and phase one is primarily completed now so we've actually just now.

Started exiting some of the positions in North America.

We've got them virtually fully staffed for phase one in Bangalore right now so we've had the cross training so.

That is well underway phase two will continue through this quarter with really exiting the positions here in North America in the early part of Q3.

Okay, Great right now all our hiring plans are on track and moving along exactly on plan.

Okay. Thank you.

And obviously a recent market.

Volatility is really slice evaluations of many companies and.

I just I was curious if there was an opportunity.

Given what is your appetite in the current market environment to potentially.

The acquisitive and somebody was to get to pass up is that even on on.

On the plate right now.

You know, there's so many unknowns out there right now and typically where our Pat answer would be we'd always consider something that comes.

So to us and if it makes business sense and that's certainly the case, but with the volatility in the market may present, some opportunities. But then there's also we've got to get a better understanding of the potential risk as well.

It's hard to do right now.

Totally understand okay. Thank you for taking my questions.

Thank you Josh.

Thank you at this always comes at the end of our allotted time facies question answer session and I will turn the call Nigel into for no for closing comments.

Thank you and thank you all for your participation in today's call and for your continued interest in vote. We look forward to speaking with you again, when we report our second quarter fiscal 2020 results in June.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.